HG 538 A18 1973 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402. Price: 70 cents, domestic postpaid; 45 cents, GPO Bookstore Stock Number 4114-00012 GENERAL BOOKBINDING CO. QUALITY CONTROL MARK TRANSMITTAL LETTER COST OF LIVING COUNCIL DEAR MR. PRESIDENT: The attached Sixth Quarterly Report on the Economic Stabilization Program covers the period from January 11, 1973, when Phase II was concluded and Phase III begun, through March 31. The first quarter of 1973 produced a sharp increase in prices. The February devaluation of the dollar contributed to the rapid price increases of many internationally traded commodities. The shift in the Stabilization Program from prenotification by large firms to a self-administered system eliminated bureaucratic delay in putting price increases into effect. Also, in late March and early April, when Congress was debating legislation that would have instituted a price freeze, there were reports of companies marking up prices in anticipation of such a move. However, each of these factors influencing price developments is temporary in nature. More significantly, there were large price increases in several economic sectors experiencing an imbalance of supply and demand, most notably food, but also lumber, nonferrous metals and petroleum products. These inflationary pressures have been dealt with in several ways. Under Phase III, ceiling prices have been placed on red meats, and in the petroleum industry the larger companies have been placed under mandatory controls. Public hearings have been held on lumber and plywood prices to explore the advisability of applying mandatory controls to that sector. At the same time, price pressures in these problem areas are being dealt with in a more fundamental way. Major policy changes have been undertaken, in conjunction with other Federal agencies, to get at the root cause of the price increases by augmenting supplies. A wide range of agricultural policies have been changed to encourage additional production of foodstuffs. Excess inventories of nonferrous metals and other commodities are being sold from Government stockpiles. Oil import quotas have been ended to increase available supplies of petroleum products. An interagency task force has been established to assist the Forest Service increase its lumber output within necessary environmental constraints. As these policy steps take hold and the additional supplies come to market later in the year, the rate of inflation will decline. Never theless, the need for continued action against inflationary pressures, wherever they occur, is clearly indicated at this time. It should be kept in mind that the campaign against inflation in this country is taking place in a worldwide economic situation marked by rapidly rising prices. The United States has been more successful than any other of the industrialized nations in restraining inflation. The industrial relations atmosphere remains favorable for settlement of collective bargaining negotiations on reasonable terms. In several industries, actions taken or begun in the first quarter of 1973 point to constraint consistent with overall anti-inflation goals. Following the one-year extension of the legislative authority for the Economic Stabilization Program on April 30, several modifications were made to the Phase III Program requirements to heighten its effectiveness. However, the broad program standards, essentially the same as those in effect during Phase II, remain as announced on January 11. From the outset, we have emphasized the fundamental need to keep supply and demand forces in balance. We have not sought to put primary reliance on permanent, rigid controls. Such controls might produce short-run benefits, but would certainly aggravate the price problem over time. Price and wage controls, if they are sufficiently flexible to reflect changing economic conditions, can play an important supporting role. We expect Phase III to make a contribution to the fight against inflation in 1973, just as Phase II did during 1972. Nevertheless, the main elements in our anti-inflation efforts are those fundamental policies that can have an impact on the economic balance of supply and demand. Accordingly, Government policies have been altered wherever possible to permit increased production of commodities in short supply. Of even greater importance is the need for control of overall economic demand through continued restraint in the budget and in monetary policy. T C C |